Nov 2009 Financial News

S & P revises Barbados outlook to negative. Ratings agency points to island's deteriorating public finances.

Nov 16, 2009

NEW YORK, USA - Less than two weeks after downgrading Jamaica's credit-worthiness, international rating agency Standard & Poor (S&P) announced on Friday that it revised its outlook on regional counterpart Barbados to negative from stable.

S & P, at the same time, affirmed Barbados' 'BBB' long-term foreign and 'BBB+' long-term local sovereign credit ratings. The short-term ratings remain at 'A-3' for foreign currency and 'A-2' for local currency. The transfer and convertibility assessment for Barbados is 'BBB+'.

According to the ratings agency, the negative outlook reflects the possibility of a downgrade if Barbados fails to contain fiscal deficit widening this year and reduce fiscal deficits starting in 2010.

"The outlook revision on Barbados to negative is due to our view that the timeliness and magnitude of the government's fiscal consolidation, necessary to preserve Barbados' credit fundamentals at the current 'BBB' level, is uncertain because of a worse-than-anticipated economic recession in the country," said Standard & Poor's credit analyst Olga Kalinina.

According to S & P, results for the first three quarters of 2009 underscore a rapid deterioration in Barbados' public finances, at a faster rate than it had previously assumed, and a sharper economic contraction. The agency said, as a result, it revised Barbado' real GDP estimate to negative 4.8 per cent in 2009 (from its previous estimate of negative 2.5 per cent), with a further decline of one per cent expected in 2010, before a return to growth in 2011.

The ratings agency added that it made a significant revision to its expectations for the Barbadian government's fiscal deficits, both for 2009 (based on three quarters of 2009 data) and for the last three years (based on new information on the off-budget activities).

"We now expect the general government deficit at 7.1 per cent of GDP in fiscal 2009 (ending March 31, 2010), up from 5.6 per cent last year, six per cent in 2007, and 3.8 per cent in 2006. This encompasses the central government deficit of 9.1 per cent of GDP (including 0.5 per cent of off-budget deficit) and the National Insurance Scheme (NIS) surplus of two per cent," said S & P in a release.

S & P said its projections incorporate an assumption of a gradual reduction in the fiscal deficits starting in 2010, although, it said, the debt is likely to peak in 2010 at 55 per cent of GDP (on a net basis), before starting to decline in 2011.

"We note that there is support across the political spectrum, private sector, and unions for fiscal tightening and that the government is preparing a medium-term framework to address the situation. The risk to our projections, however, is the timeliness and efficiency of the anticipated measures amid a slowing economy and rising unemployment," said the ratings agency, which noted that rapid consolidation of public finances, most probably accompanied by a return of foreign investment, would restore strength to Barbados' balance sheet and support the stable outlook.

On November 2, S & P downgraded Jamaica's long-term foreign and domestic currency ratings from CCC+ to CCC, just three days after the country's central bank governor Derick Latibeaudiere, who was the country's lead negotiator for an International Monetary Fund standby facility, was fired.


Source:
Jamaica Observer
Sunday, November 15, 2009

http://www.jamaicaobserver.com/magazines/Business/html/20091114T210000-0500_163834_OBS_S___P_REVISES_BARBADOS_OUTLOOK_TO_NEGATIVE_.asp